Types of Companies in the UK
Updated: 4 days ago
Starting a business in the UK means deciding what type of company to set up. The type you choose affects how much tax you pay, your responsibilities and how much personal liability you take on. This guide explains the most common types of companies in the UK and their key features. It should help you choose the right business structure.
1. Sole trader
A sole trader is the simplest type of business. It is owned and run by one person, who is personally responsible for the business's debts.
Key features
Easy to set up: you only need to register with HMRC.
Low cost: no registration fees or complicated paperwork.
Full control: you make all the decisions and keep all the profits.
Personal liability: you are personally responsible for any business debts.
Best for
Freelancers, small businesses and individuals starting out with minimal risk.
2. Partnership
A partnership is a business run by two or more people who share the profits and responsibilities.
Different types of partnership
General partnership: all partners share responsibility for debts and decisions.
Limited partnership: at least one partner has unlimited liability, while others have limited liability.
Limited liability partnership (LLP): partners have limited liability, similar to a company.
Key features
Shared responsibilities: partners share decision-making and profits.
Tax: partners are taxed on their share of profits as personal income, not corporation tax.
Liability varies: liability depends on the type of partnership.
Best for
Professional services firms, like lawyers or accountants, or small groups of people starting a business together.
3. Private limited company (Ltd)
A private limited company is a separate legal entity from its owners. The company is responsible for its debts, not the owners personally. Most people who set up a limited company choose a private company limited by shares.
Key features
Limited liability: owners' personal assets are protected.
Shares: ownership is divided into shares, which can be owned by individuals or other companies.
Tax: the company pays corporation tax on profits, which can be lower than personal income tax rates.
Filing requirements: it must file annual accounts and a confirmation statement with Companies House.
Best for
Small to medium-sized businesses that want to protect the owners' personal assets.
4. Public limited company (PLC)
A public limited company is similar to a private limited company but can sell its shares to the public.
Key features
Shares sold publicly: shares can be offered to the public, and may be listed on a stock exchange.
Higher regulation: a PLC must meet stricter reporting and transparency requirements.
Large capital requirement: it must have a minimum share capital of £50,000.
Best for
Larger businesses looking to raise significant capital by selling shares.
5. Social enterprise
A social enterprise is a business that aims to benefit the community or solve social issues, rather than just making a profit. Profit organisations focus on owners' returns. Social enterprises put their purpose first.
Key features
Focus on purpose: profits are reinvested into the community or cause.
Legal structure: it can operate as a limited company, a charity or a community interest company (CIC).
Accountability: it must report on how profits are used to meet social goals.
Best for
Businesses focused on making a positive social or environmental impact.
Other types of companies in the UK
There are a few other ways to set up a UK company. They are less common, but they may suit particular needs.
Company limited by guarantee: members promise to pay a set amount if the company is wound up. These companies have no shareholders. They are often used by clubs, associations and non-profit groups.
Unlimited company: owners are personally liable for all the company's debts. This is rare. An unlimited company may suit those who value privacy in their accounts.
Community interest company (CIC): a company that exists to benefit the community rather than private owners. It can be limited by shares or by guarantee.
The main law on companies is the Companies Act 2006.
How to choose the right type of company
Consider these factors
Liability protection. Do you want to protect your personal assets? Choose an Ltd, LLP or PLC.
Tax. How do you want to be taxed? Sole traders and partnerships pay income tax. Companies pay corporation tax.
Complexity. Are you comfortable with extra paperwork and regulation? Private limited companies need more administration than sole traders.
Funding needs. Do you need to raise capital? A PLC can sell shares to the public.
Purpose of the business. Is your business profit-driven, or do you have a social mission? A social enterprise or a charity may suit a non-profit goal better.
Company formation: the basics
Company formation is done through Companies House. You will need to choose a company name, name at least one director and give a registered office address in the UK. You must also say who owns and controls the company.
Your company name must not be the same as an existing name on the register. It also cannot be offensive, and some words need special permission. For practical steps, see the government's guide on how to set up a business.
Our guide to starting a business in London also covers the first steps.
Final thoughts
Choosing the right type of company is one of the most important decisions for any business owner in the UK. It affects how much tax you pay, how much risk you take on and how your business can grow.
If you are unsure which option is best, speak to a solicitor or business adviser. With the right structure, you will set your business up for success.
